THE
ECONOMIC
February 22, 1964
WEEKLY
Limitations of Self-Sufficiency in Defence Production
I S Gulati
Prime Minister Nehru says in the April 1963 issue of Foreign Affairs :
" I n the past our preoccupation with the hum an problems of poverty and illiteracy was such that- we
were content to assign a relatively low priority to defence, requirements in the conventional sense. We will
now clearly have to give considerably more attention to strengthening our armed forces and to the production within the country, to the extent possible, of all weapons and equipment needed by them."
The questions arise: Should a country like India aim at self-sufficiency in defence? Is autarchy
in defence economically more justifiable than in civilian goods and services?
These questions are important because on the answers- to them may depend the whole future strategy of Indian Planning.
C A P I T A L and technology constitute the sinews of peace as w e l l
as war. observes Professor B N
G a n g u l i who was a member of the
U N Committee on the Economic
Consequences
of
Disarmament.'
W h e r e the sinews are l a c k i n g , defence
effort consists merely in p r o v i d i n g
the manpower and equipment and
armaments are i m p o r t e d as defence
a i d or defence-support aid. but these
do not necessarily foster economic
development. In m a n y cases, in fact.
they create distortions in weak economies. It is, therefore, necessary
to look for the '"sinews".
Import
substitution is m o r e essential in this
l i e . defence and defence-related
production)
than in other fields.
Capacity to b u i l d machines for
m a k i n g machines and equipment for
m a k i n g intermediate and final products is more essential in defence
p r o d u c t i o n or defence-oriented production than in c i v i l i a n p r o d u c t i o n .
(See The Economic Weekly, A n n u a l
N u m b e r . 1963, p 1 5 1 ) .
Professor G a n g u l i deplores the
fact that India's dependence on i m ports of m i l i t a r y goods and services
amounts to almost 38 per cent of
its total defence budget as against
15 per cent in the U K in recent
years. A sound defence policy w o u l d ,
a c c o r d i n g to h i m , require a considerable degree of i m p o r t substitut i o n in the s u p p l y of these m i l i t a r y
goods and services.
I
One can have l i t t l e quarrel w i t h
Professor G a n g u l i when he suggests
that I n d i a ' s import-defence could be
reduced " w i t h a proper i n t e g r a t i o n
a n d c o o r d i n a t i o n between defence
p r o d u c t i o n and c i v i l i a n p r o d u c t i o n " ,
especially where we have supplies
of the things necessary to meet de-
fence demands. In fact, one can go
further in supporting this view on
grounds of
(a) fuller utilisation of existing
capacity
(assuming demand
was
previously i n a d e q u a t e ) ; and.
(b) conservation of scarce foreign
exchange.
But doubts arise about the v a l i d i t y
of, the proposition that there is a
stronger case for b u i l d i n g up i n d i genous industry in defence production than in c i v i l i a n p r o d u c t i o n . At
least on economic grounds the proposition is not unassailable.
Let us first examine the non-economic a r g u m e n t in favour of what
we shall c a l l the self-sufficiency
preposition,
The argument m i g h t
run like t h i s :
No country w h i c h
aims at b u i l d i n g up an adequate
system of defence should r e l y , for
its supply of armaments and i m portant defence equipment, on foreign countries. It does not matter
how f r i e n d l y they are. because there
can never be a complete i d e n t i t y of
interests between any two countries.
We may at once a d m i t the force
of this argument. The present controversy among the Western powers
on the possession of nuclear deterrents stems p r i m a r i l y f r o m this argument. The danger at present, however, is not of m i n i m i s i n g its force
hut of m a g n i f y i n g i t . T h i s danger
is present not o n l y in the Western
w o r l d hut also in I n d i a . By emphasising the i m p o s s i b i l i t y of h a v i n g a
complete
i d e n t i t y of interests, it
ignores that there can lie a f u l l measure of agreement between several
nations on fundamentals or on v i t a l
interests. Nations h a v i n g identical
v i t a l interests to protect should be
able to rely on each other in matters
o f defence, p a r t i c u l a r l y w i t h regard
to defence supplies. In other words,
it is not quite realistic to base policy
cm the assumption that defence imports w i l l not be possible to secure
in the event of threat to a country's
v i t a l interests.
Economic Arguments
A n d this brings us to the economic
aspect of the self-sufficiency proposition w h i c h we propose to examine
in1 greater d e t a i l . Let us. to begin
w i t h , take note of
the arguments
that are adduced in favour of capital goods industries in general. The
chief argument is that "these industries must grow speedily if the requirements of further industrialisation are to be met in adequate measure from the country's own resources" (italics o u r s ) .
The development of these industries, savs the
T h i r d P l a n , "Ms an essential condition of self-reliant and self-sustained
g r o w t h " . Now this desire for selfsufficiency in c a p i t a l goods, as the
U N Economic Survey of Asia and
the Far East (1961 ) observes, need
not mean that the country is unm i n d f u l of the advantages of international division of labour, or wishes to c u r t a i l foreign t r a d e ; it o n l y
i m p l i e s "a refusal to accept the
constraints, that w o u l d otherwise be
imposed on g r o w t h by the apparently bleak prospects for exports'" (p
30)
The assumption u n d e r l y i n g this
argument is that unless special care
is taken to develop capital goods
industries w i t h i n the c o u n t r y . the
process of i n d u s t r i a l i s a t i o n and
therefore of g r o w t h w i l l have to be
slowed d o w n because export earnings
w i l l not rise sufficiently fast to finance the increased capital goods i m ports required to feed the abovem e n t i o n e d processes. This is not an
e n t i r e l y i n v a l i d assumption. In tech413
February 22,
1964
THE ECONOMIC WEEKLY
February 22,
1964
meal terms, it implies that the in., a plant with a view to manufaccome elasticity of demand for im- turing defence equipment, say,
ports of the underdeveloped countries aircraft, instead of buying aircraft
is greater than the income elasticity abroad should mean that immediate
of demand for their exports from defence capability is allowed to
the advanced countries,1 an assump- remain weak.
Given a certain
tion which appears to be quite rea- amount of foreign exchange, availalistic, at least for India. If, however, ble out of either the country's own
this tendency towards imbalance is earnings or foreign grants and
offset by foreign aid, the case fur loans, several times more aircraft
capital goods industries built on this can be bought immediately than
argument is weakened. It becomes the number it will be possible to
even weaker if an underdeveloped manufacture when the plant is put
country is assured of foreign assist- on stream. There is also the quesance over a fairly long period,
tion of time-lag between the purAt the same time, it cannot be chase of plant and its going into
overlooked that capital goods in- full production. If. let us say, it
dustries are highly capital-intensive takes two years to set up a plant and
and for underdeveloped countries put it on stream, during this period
highly import-intensive as well. of two years the country's defence
Therefore, investment stressing the system goes without aircraft of the2
creation of capital goods industries type to be manufactured locally.
yields a lower rate of growth of
Technology of War
income since it absorbs an inordiFrom the long-term point of view
nate amount of scarce capital and
also increases income elasticity of also, the decision to manufacture
demand for imports. Thus this one's own defence equipment may
decision in favour of capital goods have its drawbacks, especially in an
industries increases the foreign underdeveloped country. Assuming
imbalance it is sought to avoid. that the plant set up is fully modern
The strategy of economic planning and further that the level of trainadopted in India whereby accent is ing given to local technicians for
placed on the development of ca- operating this particular plant is of
pital goods industries on the one the highest order, the best that one
hand, and handicrafts on the other, can hope for is that the productivity
can be said to aim at achieving of the plant will be as high as in
some sort of balance, on the as- the advanced country exporting the
sumption that handicrafts are mi- plant. But it will lake the undernimally capital-intensive and im- developed country a long time before
it can hope to design an improved
port-intensive.
Now in the field of defence also version of the imported plant, certhe case for capital goods produc- tainly much longer than in the adtion can be built on the plea that vanced country. This time lag in
the country should refuse to accept technological advance has import"the constraint that would other- ant implications in the area of dewise be imposed" on defence by fence.
No system of defence, whether of
a rich or of a poor country, whether
of a technologically advanced or of
a technologically backward country,
can be effective until and unless its
armed forces are provided with th''
most modern weapons and equipII
ment. Wars, big and small, have
We have observed that invest- demonstrated this in good measure
m e n t in capital goods industries from the earliest days. A country
both reduces the rate of growth of may persist with old model civil airincome and increases the strain on craft but it will be taking a great
the balance of payments. The argu- security risk to persist with old
ment for the establishment of capi- model defence aircraft when its
tal goods industries in the area of hostile neighbour is constantly armdefence is, to our mind, open to ing itself with the best and the deadeven stronger objections.
liest of military equipment it can
From the short-term point of obtain from anywhere in the world.
view, the decision to buy and install Improved weapons and equipment
the country's foreign exchange
earnings. Thus this economic plea
is put forth to complement the
argument that political considerations may prevent the import of
much needed defence supplies.
THE ECONOMIC WEEKLY
have, therefore, to be introduced with
a minimum of time lag. Fortunately
or unfortunately, the pace of innovation in military sciences in recent years has been hectic.3 The
speed at which defence equipment
becomes obsolete in these days is so
rapid that only the most advanced
countries are adequately provided
with resources as well as know-how,
and are able to keep pace with developments. The other countries have
to rely for information as well as
improved equipment on the leading
countries. That is why inter-dependence in defence is so much in vogre
today.
The point we would like to emphasise here is that the current pace
of advance in defence technology
may make the newest of plants set
up in backward countries obsolete
within a few years of their installation. This would entail an immense
waste of resources. Not just that.
It will pose a constant threat to the
'balance of payments if every time
a defence plant is scrapped the replacement has to be imported. No
doubt waste is involved when you
scrap a plant that produces weapons, as also when you throw the
weapons into the junk heap, but you
escape the waste involved in scrapping the plant if you never bothered
to install one. It is precisely because plants engaged in civilian production do not have to be scrapped
as soon as a better designed product
is discovered (as our illustration of
civil aircraft demonstrates) that the
waste due to rapid obsolescence in
the area of civilian production can
be kept to the minimum, especially
in a planned economy.4 Therefore,
in areas of civilian production
where, on other grounds. it is considered advisable to install capital
goods industries, the fear of waste
due to rapid obsolescence need not
come in the country's way. But this
is not so in the area of defence production.
Spurious Self-Sufficiency
Thus self-sufficiency in defence
production does not mean independence from outside supplies. The
dependence is simply shifted from
military supplies to supplies of capital equipment for the defence industries. Surely, the stream of these
supplies can be as effectively interrupted by political misunderstanding
or economic pressure dictated by
115
February
22,
THE ECONOMIC WEEKLY
1964
In his article in Foreign Affairs,
Pandit Nehru says:
"What India
needs is not manpower but weapons
and other military equipment, which
in the short run she must get from
other sources and in the long run
manufacture itself.1' Pandit Nehru is
being realistic when he recognises
that in the short run India must
meet her requirements of weapons
and other military equipment from
external sources. But one wonders
if other enthusiasts of self-sufficiency
concede this,
p o l i t i c a l consideration? as ran the
.stream of m i l i t a r y imports under the
alternative policy. 5
A c t u a l l y , complete self-sufficiency
with respect to defence supplies is
v i r t u a l l y impossible to achieve for
almost any country, much less for a
country like I n d i a , even when it sets
up its own defence plants, i n c l u d i n g
plants, lo manufacture plants hecause s t i l l a large variety of essential inputs may have to he i m p o r t e d .
A n d if once we are prepared to
broaden our definition of defence
supplies to include not o n l y arms
and equipment directly needed for
defence but also a whole host of
c i v i l i a n supplies f r o m w o o l l e n textiles to petroleum the whole proposition of self-sufficiency hap to he
t h r o w n overboard.
Conclusion
To me the conclusion seems clear
that an under-developed country like
I n d i a (faced w i t h the situation created by the
Chinese threat on its
borders)
s i m p l y cannot
achieve
effective defence c a p a b i l i t y via the
path of domestic p r o d u c t i o n . A n y
attempt to achieve complete selfsufficiency w i l l lead to
immense
waste of
resources a n d one is not
even certain that it w i l l y i e l d at
least the desired result in terms of
defence c a p a b i l i t y . In the process,
however, the foreign trade i m b a l ance w i l l c e r t a i n l y be aggravated.
But to say that self-sufficiency in
defence production is an unsound
economic p r o p o s i t i o n should not be
taken to suggest that a country like
India is not justified in engaging in
the production of any defence equipment. That w i l l amount t o taking
up position on the other extreme.
On the contrary, a l l that it i m p l i e s
is that w h i l e a country like I n d i a
should
produce
simpler
defence
equipment like. say. rifles, it should
not bother to produce more c o m p l i cated equipment which is not w i t h in the range of it." present technological and resource position. One may
even go further and
speculate on
the possibility of I n d i a being in a
position to export simpler defence
equipment, like it exports sewing
machines, to advanced countries.
Notes
1
416
"Defence Production and Defence
Expenditure", The Economic Weekly,
Annual Number, February 1963.
3
Alastair Buchan writing in The Encounter of June 1963 .says that the
inter-action of the recent scientific
and industrial revolutions has transformed the soldiers and sailors, "from
being the most traditional element
in any national society" into the
boldest innovatory.
"The consequence has been to accelerate the tempo
of change in the nature of weapons
and warfare to a speed which makes
it difficult even for the innovators
themselves to perceive the effect of
their actions".
1
5
In technical terms, a plant can be
said to be due for scrapping when
its current net revenue (i e, the
excess of gross
earnings from the
sale of its products over the plant's
prime costs) falls short of the return
expected on the investment of the
sale proceeds of the plant if it is
scrapped. In a planned economy, the
time n plant is due for scrapping can
he made to coincide with the time
its economic life was originally expected to end by shutting out the
competing improved products. It may
well be argued that not all defence
plants need be thrown into the junk
heap, they can be converted to civilian production. But the cost of
conversion is bound to be high and
should be taken note of even where
this conversion is technically feasible.
I owe this point to Professor Paul
T Ellsworth who was kind enough
to go through the draft of this article.